LLCs, or limited liability corporations, combine advantages of partnerships and corporations while avoiding some of the pitfalls of both. Forming or re-organizing as an LLC is a fairly straightforward process in many cases, but it is in your best interest to work with an Orange County business attorney if you find that this business arrangement is right for your needs.
Much like a corporation, a limited liability corporation is formed by filing Articles of Organization with the state. The owner must construct an operating agreement and gain approval of all members. It is best to have a written agreement that is signed by the members. The provisions of the agreement are largely up to those who will manage it, but to ensure that the plan will be viable anOrangeCountybusiness attorney should be consulted.
The management structure is not as rigid as that of a corporation. For instance, limited partners can be brought in as investors, but may take an active role in management and operations.
LLCs are a kind of hybrid business organization. As such, they possess certain characteristics of partnerships, yet may run much like corporations. The most striking advantages involve tax and liability.
- Tax Status: LLCs have the power to decide whether to operate as a corporation or partnership/sole proprietorship. Depending on the needs of a given business, one status may be more advantageous. If it is unclear which will work best for your business, anOrangeCounty business attorney can assist.
1. Corporate Status: Corporations must pay a dual tax, for not only is the business taxed on the corporate level, shareholders’ dividends are taxed again. For many, avoiding this status is one of the major reasons to form as an LLC, but certain companies may find this works better for their needs.
2. Flow-Through Taxation: An LLC may also take on the tax status of a partnership in which the tax flows through the business to the members. This means that the business is, in essence, only taxed once.
- Protection from Liability: Even if an LLC decides upon the tax status of a partnership, the members enjoy a significant advantage in that they avoid the consequent personal liability. Personal assets cannot be attached, therefore, if the business is sued or fails.
For More Information
For more information about limited liability corporations and other business structures, speak with an Orange County business attorney today. Call Reed Aljian and Justin Daily to make an appointment at (949) 861-2524.